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Wednesday, August 26, 2015

Emotional Surges for WTI and DJIA

Domestic markets appear to stabilize a bit today as the Dow Jones threatens to break through the 16,000 point level just a 1,000 points below where it had been all year. Glancing at the global Dow Jones index reveals the alleviation of ideas of heightened volatility that could have come as a result of Chinese financial problems. The taste test sampling international markets is down only 0.49% despite losses of 7.48% for the past five days. Crude markets showed signed of life as Brent and WTI benchmarks both increased at +0.68 and +0.42 respectively. More stability permeates the oil markets as Exxon and Chevron are among the top movers in the U.S. stock market (XOM +$3.79, +5.52%; CVX +$3.07, +4.38%). Oil and natural gas companies posted significant gains overall with XOI and XNG gaining over 2.5% of price lost in the past three days

A look at the high, low, open, and settlement prices over the past five days reveals the reversal of a new trend after a recovery from the global markets as well as looser pressure on oil prices. The two days of Chinese crashes saw WTI and Brent losses with settlement prices reaching towards the lows on the last three days of last week. Highs on all four losses were actually above the opening price hinting at volatility that plagued days like August 24th where prices finished around $3 lower than the daily high. The trend of highs and lows outside the open and settling prices changes on the 25th of August. In fact, the day was quite bullish with the daily low and the opening price being identical. Prices never dipped in the red with sentiment studded in the positive direction, and though the high never broke through $40 like the past days, a relevant move back into that price range is brewing and adding to oil company stock price. This Chinese crisis seems to be a very positive thing for overall emotions surrounding the oil market. While demand statistics appeared to be in danger with the possibility of lower cash flow after losses across industries, the supply glut seems to be ignored for the moment as stabilized markets contribute to relief that growth is possible again. The human mind has a tendency to focus on intense negative events like a 600 point loss reported by almost every major media outlet. Relatively, we might see some deceleration in crude oil losses as the markets continue to surge (even though the Dow is almost 1,000 points lower). Investors do not see this as a one thousand point loss of real value, but instead, a trimming of speculated inflation needed for actual growth. Corrections are a part of the cyclicality of the market, but oil fundamentals should not operate under this pattern as prices should be accurately determined by market forces. The efficient market hypothesis contradicts with theories about sentiment, but what trader can divorce himself from the emotion of a stock crash. The emotion is real, and so is the buying which seems to have spread to the crude oil market for today. Theories about emotion mention a spillover effect that describes a transfer of intense emotion from one period of feeling to the next. We could see gains in the Dow do just that for WTI even if the oil situation has not changed. I would like to see some decline in rig utilization data in order to sustain positive movements for crude oil. Perhaps we could see $40 crude oil or higher by the end of the week. Keep one eye on SMAs for the week and the month, and the other on indexed market performance (Dow, S&P, NASDAQ) for bullish and bearish signals on which to trade.